Ailing Sigma to face market at last

The board of embattled
Sigma Pharmaceuticals
is about to face the wrath of investors when it delivers the company’s full-year profit results to the market on Wednesday.

Sources close to the company said there would be no changes in the Sigma board announced on Wednesday and chief executive
Elmo de Alwis
would brief the market.

Sigma suspended trading in its shares more than four weeks ago, initially via a trading halt and then a full suspension, pending an announcement “in relation to revised earnings guidance arising from year-end adjustments".

Market watchers expect Sigma could post a $150 million full-year net loss after goodwill impairment charges, below the $92 million profit predicted by analysts before the downgrade was signalled.

Sigma is expected to write down the carrying amount of goodwill on its balance sheet by more than $250 million, specifically due to the decreased value of Arrow Pharmaceuticals, which accounts for about 70 per cent of its intangibles.

The company paid $700 million for Arrow in 2005, but the business has sharply fallen in value as heavy discounting in the competitive generic drugs sector hurts revenue and decreases the value of Arrow goodwill on Sigma’s balance sheet.

Sigma shares, which have not traded since February 24, last closed at 90¢, giving the company a market value of $1.06 billion.

Analysts expect Sigma’s shares will dive once they resume trading as disgruntled shareholders, many of them pharmacists, ditch the stock amid concerns about the company’s financial woes.

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It is expected that shareholders will demand the board explains the reasons behind the company’s five-week suspension and why Sigma’s financial position soured after its decision to raise $297 million through
Deutsche Bank
in September.

Analysts predict the most likely option for Sigma to cut debt would be to sell the underperforming Herron brand of painkillers for between $50 million and $100 million.

PricewaterhouseCoopers’ delays in auditing Sigma’s accounts have prevented the company from reporting earnings as it renegotiates its coverage covenants with its banks.

The downgrade came amid speculation Sigma had continued enticing key pharmacist clients to bring forward purchase orders to try to meet its end-of-year budget targets.